A Business Opportunity or “Biz Op” is similar to a franchise in that it is a fully formed business model for sale. It is usually a complete system for doing business that typically offers everything from startup assistance to all of the necessary processes, equipment, sales and marketing tools as well as complete training. The primary difference is regulatory, in that a franchise is required by the Federal Trade Commission to offer a Franchise Disclosure Document to all prospective buyers. The FDD contains twenty-three specific points that explain all of the costs, what they get for their investment and thoroughly defines the relationship. The better Biz Ops usually offer an equivalent to this document, but are not required to do so.
One of the biggest challenges with a Biz Op is that unlike a franchise, they are not required to provide the name and phone number of every single person who is operating their business model or indicate how many of them have failed. This generally puts most of the burden for due diligence on the buyer, in contrast to the very well-defined discovery process most franchisors offer.
Another key difference is that in a franchise, you will typically pay on-going support and advertising royalties for the life of the business. In a Biz Op, you will generally not pay royalties, but you may not get any continuing support either.
For some entrepreneurs the Biz Op arrangement is ideal. They feel more comfortable being on their own after the startup phase, but they can still reduce their risk and enjoy the benefits of an already proven system for generating profit. Certain types of businesses may be better suited for franchises such as retail stores or restaurants. These businesses typically need the group buying power or national branding of a large organization. However, many other businesses do better as a Biz Op (i.e., Dry Cleaners and Mailbox Stores) because the long-term value of being in the group may not justify the ongoing royalties.
Either way, franchises and Biz Ops can both be an excellent way to get into a lucrative and rewarding business. There are of course, very good and not so good opportunities, irrespective of the structure. Your best bet, as always, is to examine your goals and your own preferences in order to decide which vehicle is right for you.
Have a question about business opportunities? Send it to email@example.com. Dan Brunell is President of Dearborn West, LLC, a national business opportunity brokerage headquartered in Temecula, CA. He can be reached at (951) 587-6929 or on the web at www.dearbornwest.com